Dollar turns higher before EU summit

Greenback shakes off losses after U.S. payrolls

By

DeborahLevine

WilliamL. Watts

NEW YORK (MarketWatch) — The dollar turned higher against the euro and other major currencies on Friday as key meetings in Europe next week are prompting traders to unwind big positions, after a strong week for the euro.

The switch helped the greenback shrug off losses after a report showed the U.S. economy added 120,000 jobs last month.

“Traders have enjoyed their risk positions for a couple days so are taking positions off the table because there’s too much event risk next week,” said Dean Popplewell, chief currency strategist at Oanda Corp.

The dollar index
DXY, -0.28%
, which tracks the U.S. unit against a basket of six major currencies, turned up to 78.609, from 78.084 before the data and up compared to 78.293 in North American trade late Thursday.

The euro
EURUSD, +0.3077%
fell to $1.3409, down from $1.3518 in morning trading and compared to $1.3467 late Thursday.

The dollar gained ground on the Japanese yen
USDJPY, -0.70%
rising to ¥78.03, up from ¥77.72.

The dollar began paring losses after the U.S. Labor Department said the economy added fewer jobs in November than many analysts expected. The report also showed a big unexpected drop in the unemployment rate as people left the workforce -- a bad omen for economic growth. See story on payrolls.

“The labor market is slowing recovering but the pace of recovery is still not strong enough to remove the risk of a double dip in 2012,” said Kathy Lien, director of currency research for GFT. “Although Federal Reserve officials will be relieved to see the jobless rate decline, the level of job growth and the labor market in general is not healthy enough for them to abandon their plans to increase transparency in monetary policy next month.”

Analysts also noted worries stemming from reports saying Republicans in Congress may try to block the International Monetary Fund from future bailouts of Europe, since the U.S. is the biggest shareholder in the IMF. Read blog about IMF bailout.

The next European summit

The euro was up before the report as Germany and France promised to push for closer fiscal union in the euro zone.

German Chancellor Angela Merkel on Friday said that a Dec. 9 summit of European leaders would focus on quick treaty changes aimed at tightening fiscal ties across the 17-nation euro zone. Read more about Merkel, European fiscal union.

“To get out of all this requires fiscal and political union among all the euro members,” Popplewell said. “Everyone seems to be on the same playing field and has a sense of urgency.”

“It’s the first time for a long period that no one seems to be suffering from the ostrich syndrome,” he said.

European Central Bank President Mario Draghi on Thursday held out prospects for more aggressive action by the central bank. Draghi called for a new “fiscal compact” for the region, saying that other “elements” might follow.

“Altogether, it indeed appears that there is some more progress on the political front and hence it cannot be excluded that next week’s events such as the EU summit or ECB meeting [on Thursday] will not disappoint,” said Manuel Oliveri, currency strategist at UBS.

For the week, the euro has gained 1.3%, boosted Wednesday after the world’s major central banks made a coordinated effort to improve liquidity in financial markets and make it cheaper for banks to access dollars. Read about central bank intervention.

For the year, the shared currency is up just 0.2%.

The dollar index has fallen 1.4% this week but just 0.5% so far in 2011.

Canadian jobs, dollar

The U.S. dollar reversed an earlier loss versus the Canadian unit after the country’s statistics agency said Canada’s November jobless rate unexpectedly rose to 7.4% in November from 7.3% in October. The seasonally-adjusted number of persons in employment fell 18,600, fewer than analysts predicted.

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